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Predicting the economy’s growth rate is almost impossible as many different variables go into the calculation. However, one often overlooked concept is human capital. Gary Becker, an American economist, says that “human capital is by far the most important form of capital in creating wealth and growth”. Thus, this needs to be prioritized by America’s policymakers. This is important because the quality of human capital is deteriorating due to the rise of America’s income inequality gap. With less money being funneled towards the lower-income classes, there is a greater likelihood that they worry about paying for basic necessities and rent. This was also seen in a recent experiment done by Sendhil Mullainathan, where he found that the “cognitive load of poverty hurts low-income folks' ability to escape their circumstances” (NPR). Put simply, lower-income individuals will be less productive in their jobs when they are strapped for cash.
So, what does this all mean? Do we need to follow Joe Biden’s plan to raise the minimum wage to $15? Do we need a Universal Basic Income program? It will be a bold move to follow either of these plans, but they both have the capability to expand economic opportunities for many Americans. This is because both of these plans are prioritizing human capital above all. When people can live comfortably with their incomes, they will be more productive and efficient at their job. Additionally, providing people with more disposable income incentivizes more business ventures to start. Instead of panicking about personal finances, that energy for lower-income individuals can fuel creative ideas. Through appealing to the innovative sides of individuals, it is bound to eventually increase our national output in the long-run. By lessening the income inequality gap, we can create an economy that grows at a sustainable rate while a majority of individuals can live with ease. Income inequality is accelerating amidst this pandemic and we cannot leave lower-income Americans behind as they are the ones who can propel our economy forward.
Sources:
Charles Wheelan: Naked Economics: Undressing the Dismal Science
NPR: https://www.npr.org/sections/money/2021/02/02/961910289/how-poverty-makes-workers-less-productive
New York Times: https://www.nytimes.com/interactive/2020/04/10/opinion/coronavirus-us-economy-inequality.html
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